Trading for beginners – evaluating the primary options for the novice prospector

To determine what form of trading will be most successful, a trader should first ask oneself what kind of trader they are.  We’ll discuss some of the most common trading styles, such as intraday trading, day trading, and swing trading and how to determine which is best for your purposes.

The Intraday Trader

Do you see yourself as an opportunist who wishes to maximise your benefits on quick price changes and opening positions in terms of seconds, minutes, and hours? Then Intraday trading could well be an option for you to consider.

Intraday Trading is basically the act of buying and selling stocks on the same day, just before the market shuts. And if you’re into studying the technical aspects of trading, with a particular emphasis on price action, then you might be suited to this method of trading.

Making wise judgments requires paying close attention to price action, particularly when trading on shorter timeframes. Because Intraday Traders should enter and exit the market without any delays, they require a substantial degree of depth and liquidity in the markets they trade.

Therefore, key strategies for intraday trading depend on building up small earnings while assuming less risk.

WHAT YOU NEED TO KNOW

Some words/tactics related to intraday trading that you need to be aware of for the Intraday Trader are Scalping, HFT(high-frequency trading) and Order Flow Analytics.

Scalping strategy is one where traders frequently buy and sell stocks during the day in order to make a little profit.

High-frequency trading, also known as HFT, is an algorithmic trading style characterised by quick trade execution times, high order-to-trade ratios, and the use of high-frequency financial data.

Finally, order-flow analysis is the process of analysing the flow of trading orders and making predictions about future price changes based on how they will affect the price.

The Day Trader

If you consider yourself to be a person who is slightly less risk averse and one who focuses on lower volumes and quality rather than quantity, then Day Trading could well be the way to go.

When a trader opens a position on any market with the intention of closing the position only after the market closes, this is referred to as day trading.

In an effort to concentrate on identifying one premium opportunity per trading session, day traders frequently place one to two deals per session. To put it simply, a day trader’s primary goal is to find the best trading chances of the day and hold fast until the market closes, hopefully to net bigger gains.

As with Intraday Trading, Day Trading also has tactics that you need to make yourself aware of. Those primarily being Trend Following, Momentum Trading and Range Trading.

Trend following is a method that involves analysing the trend direction of a financial asset. Let’s say a large consumer brand releases a new product and the market is trending upward, it’s likely that a trader would enter the market and go long, monitoring its progress over weeks, months and sometimes years. This is a very common form of trading for the novice.

Momentum trading refers to the practice of taking positions on rising securities and closing them when the securities appear to have reached their peak. The trader’s goal is to take advantage of the volatility by spotting purchasing opportunities for short-term trends before making a sale when the instruments lose steam.

Range traders can take advantage of non-trending markets by identifying regular high and low prices, also known as resistance and support levels. Trading within a predetermined, constrained range involves buying and selling when an asset is oversold or overbought. This approach can be used with a variety of instruments and asset types.

The Swing Trader

Perhaps you consider yourself as a more flexible type of person and one who is equally happy to take trades in a day or a few weeks or months down the line? In that case, you may identify with Swing Trading.

Swing traders seek to profit from more subtle price changes within a larger trend and they view these variations as profitable trading opportunities.

When looking for trading chances, swing traders typically concentrate on fundamental analysis. This is not to suggest that they don’t employ technical instruments and indicators, which are employed in conjunction with global macroeconomic trends and other political variables to help pinpoint the best entry moment.

One of the finest trading strategies for beginners is swing trading because it offers more flexibility. Swing traders have open positions for longer periods of time than intraday and day traders, which enables them to take their time analysing the technical and fundamental aspects of a trade using tools and indicators.

The most common associated Swing trading tactics are those of Fibonacci retracement, Support and Resistance and Breakdown Forex Trading.

Quite simply, the goal of breakout Forex Trading is to locate a position as soon as the uptrend is beginning, with a focus on breakout positions. If the price breaks, this is the time to start a position.

Fibonacci retracement sounds the most complicated as it uses chart patterns to pinpoint the price ranges at which an item will either increase in value or decrease in value. It’s known as the Fibonacci sequence, plotting uphill and downward reversals and retractment ratios that help forecast asset value retracements.

Support and Resistance are price levels that are predicted to see the most buying or selling activity. Technical traders view these support and resistance levels as crucial when gauging market mood and supply and demand.

The Risk vs. Reward conundrum…

No matter how you trade, you are always putting your money at risk because there is always a chance of losing money.

Your lifestyle, your level of risk tolerance, and the amount of time you have available to trade each day should all be taken into account when determining what kind of trader you are.

To make things easier, many brokers provide a trial account to assist you get acquainted with the platform and learn different tools and tactics. These demonstrations are a terrific method to practise trading in a setting with less risk, which may help you identify your unique trading preferences.

How much time should I be spending?

This all depends on your own lifestyle and commitments. The majority of traders agree that signals are more dependable and precise the longer the time frame.

Shorter time frames might be deceptive when analysing any asset, since swings over shorter time periods may appear larger. Because they want to see the broad trend, many traders use a somewhat longer time range.

Taking into consideration the three major types of trading we have focussed on, here’s a quick guide on the timeframes involved.

Because they will be making transactions throughout the same day, intraday traders, especially those who will be “scalping” the markets, sometimes favour short time frames in the form of minutes and hours.

Day traders could opt to place trades based on 15-minute charts or 60-minute charts to determine the main trend before switching to a five-minute chart to determine the short-term trend.

Finally, Swing traders will regularly choose daily or weekly charts since they may use these time frames to define the main trend on the weekly scale and to pinpoint the short-term trend on the 60-minute scale.

How much do I need to invest?

This all depends on who you are and what kind of trader you want to be. It takes time to figure out your trading strategy and the level of risk you are willing to accept.

It is advised to never risk more than 1% of your trading account balance on a single trade on any type of trading account. Since diversification is a risk reduction strategy used frequently, this provides traders with greater capital to do so.

The same 1% rule also applies to swing trading. Swing traders, however, must take additional aspects into account because their open positions do not shut on the same day; rather, they cling onto them until the market closes.

So what kind of trader am I?

By now, you should have a much better idea of which is best suited to your needs. But it’s really all down to personal preference and, importantly, how much money you are ready to risk, how much time you can commit to trading, and what your ultimate goals are.

Recognizing your approach to trading is ultimately the greatest method to figure out what kind of trading fits your lifestyle and personality. What resources are useful to you? When do you like to trade? Do you have enough time in the day to take a variety of tasks?

Only now will it become clear that figuring out your trading strategy entails asking yourself what your ultimate goals are, how much money you are willing to risk, and how much time you can dedicate to trading.